Or so the Go-Go's song "Vacation - All I Ever Wanted" could have been re-written this week, as whispers and glimmers of future inflation as well as some positive economic news roiled the Bond market. Overall, home loan rates worsened by about .25% across the board.
Inflation at both the wholesale and consumer level came in hotter than expected via the Producer Price Index (PPI) and Consumer Price Index (CPI) reports, the latter shown in the chart below. The Consumer Price Index (CPI) rose by more than expected, and was the biggest increase in a year, mostly due to higher gasoline prices.
However, a look back over the past year shows a drop in overall CPI of 1.4%...why is this? It was a year ago that a barrel of oil was $147, and today that barrel stands at $60, up from the $30 range seen earlier this year. But even when stripping out food and energy, the most recent Core CPI rose 0.2%, higher than the 0.1% anticipated - and year-over-year, Core CPI prices were up 1.7% after rising 1.8% in the 12 months ended in May. On the wholesale side, even excluding volatile food and fuel prices, Core PPI rose quite a bit more than anticipated as well. And remember, inflation is bad for Bonds and home loan rates. If this trend continues, it could have a big impact on rates later this year.
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